Activision-Blizzard’s Next Billion Dollar Title Won't Cost Gamers a Dime

Activision-Blizzard's next megahit could be free-to-play, but it won't be like one of Zynga's games.

May 25, 2014 at 11:00AM

Activision-Blizzard's (NASDAQ:ATVI) next megahit may come as a shock to some investors. Destiny, and the next entry in the Call of Duty franchise, should do well, and sell millions, but the hidden gem in Activision's pipeline is likely to be a game few are familiar with.

Heroes of the Storm, an upcoming MOBA (multiplayer online battle arena), could emerge as Activision's next great cash cow, generating a steady stream of revenue despite being offered to its players on a free-to-play basis. Unlike other free-to-play games, the sort that have been championed by firms like Zynga (NASDAQ:ZNGA), Heroes of the Storm could have long-term staying power.

The MOBA phenomenon
As video game technology has progressed, new genres have periodically arisen: Fighters, popular in arcades, gave way to platformers, well-suited to early consoles; 3D graphics and Internet-connected boxes led to the rise of first-person shooters; broadband Internet connections allowed massively multiplayer online games like Activision's World of Warcraft to flourish; smart devices and social networks facilitated social games like Zynga's Farmville and Words with Friends.

Will the MOBA emerge as the next great video game genre? There's plenty of reasons to believe so.

In fact, to some extent, it already has. League of Legends and Dota 2, two of the most popular video games in the entire world, are MOBAs. With 7.86 million players, Dota 2 is more popular than Activision's World of Warcraft. That may sound impressive, but League of Legends is larger than Dota 2 by a factor of 9 -- its player base is truly staggering, with almost 67 million players (greater than the population of France, the U.K. and South Korea).

These numbers may not be well-known to investors, as both games are largely outside the purview of the U.S. market. Chinese giant Tencent owns League of Legends, while Dota 2 is owned by Valve, a private company. That makes exact financial performance difficult to gauge, but according to SuperData Research (via VentureBeat), Dota 2 brought in $80 million last year -- League of Legends made $624 million.

A different sort of free-to-play
That money was made without any mandatory fees or monthly subscriptions -- unlike most traditional video games, Dota 2 and League of Legends are completely free to play. Rather than make money with an upfront fee, developers allow players to purchase special in-game items for a few dollars. With such a massive player base, those purchases add up.

Investors, then, may be inclined to lump these games in with other free-to-play titles -- another Farmville or Draw Something. However, to do so would be a mistake.

Zynga's struggles have largely been a byproduct of the cyclical nature of its titles. In 2012, Zynga acquired developer OMGPOP for $200 million. At the time, OMGPOP's biggest game, Draw Something, was extremely popular, and Zynga appeared to be wisely acquiring a potential competitor. Unfortunately, the deal turned out to be a tremendous blunder -- Draw Something's popularity rapidly faded, and Zynga was forced to write off much of the purchase price.

But MOBAs are different. Although they're free to play, they are far from simple, and do not appeal to the sort of casual audience that Zynga's titles have thrived on. In fact, they may be the most core of core video game titles; the closest a video game has yet come to being considered a sport.

There have been League of Legends tournaments with $5 million cash prizes, and it is, by far, the most commonly streamed title on Twitch (Dota 2 comes in second place). The games are global phenomenon -- the two are the most popular games in China.

Activision's opportunity
Activision's Heroes of the Storm is a game in the same mold as League of Legends and Dota 2 -- a free-to-play PC title with comparable gameplay. With no set release date, and no critic reviews, there's no guarantee that the game will be a success.

But the opportunity is monstrous, and I believe deeply underappreciated. Although games like Destiny, World of Warcraft and Call of Duty will continue to be of the utmost importance to Activision in the near-term, long-term shareholders should keep a close eye on Heroes' development -- if the popularity of other MOBAs is any indication, Heroes could become the most popular game Activision has ever released.

A better investment than Activision?
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers